Your company is evaluating a new factory that will cost $14 million to build. Your target debt-equity ratio is 1. The flotation cost for new equity is 7% and the flotation cost for new debt is 4%. The company is planning to use retained earnings for 50% of the equity financing. What are the weighted average flotation costs as a fraction of the amount invested? What are the flotation costs (in $ million )?

ABC Industries is considering a 3-year project that will cost $200 today followed by free cash flows to firm of $100 in year 1, $80 in year 2, and $160 in year 3. ABC has $1000 of assets with a debt ratio of 40.00%. ABC's before-tax cost of debt is 7.00% and its cost of equity is 12.00%. Suppose ABC pays a fee of$6 to the investment bankers who help them to raise the $120 Debt capital. Assuming the tax rate is 35.00% and that the flotation cost can be amortized (i.e. deducted) for tax purposes over the 3 year life of the project. The NPV of the project using the APV method, taking into account the flotation costs, is closest to:   $8.40   $11.34   $10.66   $7.72

Please answer the following showing detailed working: Bruce & Co. expects its EBIT to be $100,000 every year forever. The firm can borrow at 11 percent. Bruce currently has no debt, and its cost of equity is 18 percent. The tax rate is 31 percent. Given the above information; a) Complete the table given below for varying levels of debt below by using a mix of the given information and using your own computations. EBIT $100,000.00       Cost of debts 11%       cost of equity when unlevered 18%       Tax rate 31%       Debts $0 $10,000.00 $20,000.00 $30,000.00 Cost of Equity when levered         Equity         D/E         Vu         VL         WACC         b) Plot the results from the table into the following two graphs:i) Value of the firm vis-à-vis- Total debtii) Cost of capital of the firm vis-à-vis D/E ratio.iii) Which MM propositions have you demonstrated?

Company T has a debt-to-equity ratio of 0.50. The company is considering a project that will require an initial investment of $54 million. The company's chief financial officer believes that all the investment needed will have to be raised externally. The flotation cost when issuing new equity is estimated to be 6.5% while the cost of issuing new debt is 2.6%. (1) What is the weighted average flotation cost percentage, and (2) by how much does it increase the amount that needs to be raised in order to cover the flotation costs?

) You are asked to estimate the RAROC of a bank's $100 million loan business, 7.5% of which is the economic capital. The average interest rate is 8%. All the loans have the same default probability of 1.5% with a loss given default of 60%. Operating costs are $15 million, and the funding cost of the business is $30 million. The economic capital is invested and earns 6%.

Speckle Delivery Systems can buy a piece of equipment that is anticipated to provide an 8% return and can be financed at 5% with debt.  Later in the year, the company turns down an opportunity to buy a new machine that would yield a 15% return but would cost 17% to finance through common equity.  Assume debt and common equity each represent 50% of the company’s capital structure.   Compute the weighted average cost of capital (WACC). Which product(s) should be accepted in your opinion? Why?

The cost of capital is 15%, the before-tax cost of debt is 9%, and the mar-ginal income tax rate is 40%. The market value of debt is $50 million and the market value of equity is $50 million. What is the cost of equity?

CCR Incorporated is considering a new project. The company has a debt-equity ratio of .62. The company’s cost of equity is 11.8%, and the after tax cost of debt is 4.9%. What is the WACC for CCR?

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Kamara Manufacturing has a debt-equity ratio of 0.3. The firm is analyzing a new project that requires an initial cash outlay of $268,500 for equipment. The flotation cost is 10.8 percent for equity and 6.1 percent for debt. What is the initial cost of the project including the flotation costs?   Total initial cost = $